Keeping Good Tax Records Ensures Maximum Tax Credits and Deductions

If you are just starting your own business, such as writing articles for the Internet, keeping tax records can be very confusing. Here are some guidelines to keeping good tax records. Contrary to popular belief, your tax accountant does not want to see a shoebox full of receipts; she or he wants either a notebook or a spreadsheet with all your expenses neatly recorded. (You can use tax software or accounting software for this, too, if you wish.)

Good tax records start by being contemporaneous--that is, recorded on or about the day they occurred. It's simple enough: take five minutes each night, and look through your receipts for that day. If a receipt is tax-deductible, write it down: place, amount, why it is tax-deductible (how did you use it in your business?).

If you travel for business, you can do the same with mileage. Each night when you get out of your car, note the number of miles driven, and how much of that mileage was for business purposes, where you started, where you drove to.

Believe it or not, you don't have to know what is deductible: this is why you should hire a professional to do your taxes. The professional will be able to ferret out tax deductions that you would never find for yourself. Simply write down anything business-related.

Some ideas for deductions are: rent or mortgage, insurance and utilities for a home office; liability insurance if you meet with clients at your place of business; supplies used for your business, including books, computers, a separate cell phone or land line, etc. Again, don't worry about this too much, because your tax professional should find all these for you. Based on what you submit, your tax professional may ask you for additional records based on her or his experience with people in your same situation.

So now can I throw away my receipts? No!

Your tax preparer does not need to see your receipts unless there is something she or he doesn't understand. However, if you undergo an audit, the IRS will require them. Generally, you should keep receipts for seven years. If space is an issue, consider buying a scanner and scanning them, or having a reputable scanning company scan them (that is a deductible business expense).

Whether you keep paper or electronic records, make sure that you have a backup in a different physical location! A fire or a flood can destroy your records and leave you with a huge nightmare (and perhaps a huge tax liability).

W-9 Form - for each supplier or contractor that you intend to deduct $600 or more, you will need to require them to give you an IRS Form W-9. This is because the IRS, for 2011, has declared that for deductions $600 and over, you will need to issue a Form 1099. If you do not get that form W-9 first, the supplier will not want to give it to you once they have finished their part. Get the W-9 first!

This includes not only people working for you, and contractors, but also suppliers: office supply stores, home remodeling stores, DIY stores . . . basically any place you spend more than $600. Otherwise, if you do not issue the Form 1099 (and you won't be able to without a Form W-9), you will not be able to deduct your expenses over $600. Get the form W-9 early in the year; you never know when you will have unexpected expenses!

I am not a lawyer. Each person's tax situation is different, and tax law is subject to change at any time. Please consult a qualified tax professional about your individual situation. I will not be responsible for any errors on your tax return.